SUTA Rates Hurt Staffing Agencies Placing Low Skilled Labor

Low skilled staffing agencies should favor states with higher taxable wage bases and lower SUTA rates because turnover, not wage ceilings, is what drives unemployment tax costs.

Most staffing owners instinctively prefer a lower wage base because it sounds cheaper on paper. But in the low skilled staffing world, many employees never stay long enough to hit the cap anyway. Warehouse workers, general laborers, and entry level industrial employees often cycle in and out before earning enough wages to max out taxable earnings.

Take a comparison between Illinois and Washington State..

Illinois has a 2026 SUTA wage base of roughly $14,250, with experienced employer tax rates reaching over 7% depending on claims history. Washington has one of the highest wage bases in the country at over $70,000, but many employers benefit from lower percentage rates.

At first glance, Illinois appears cheaper because employers stop paying unemployment taxes sooner. But low skilled staffing companies rarely experience that benefit consistently. If a temporary worker only earns $5,000 to $8,000 before quitting or being replaced, the staffing agency paid unemployment tax on virtually every dollar earned. Then the next worker starts over at zero and the cycle repeats again and again.

That is the hidden problem with lower wage base states paired with higher rates. High turnover constantly resets taxable wages. Staffing companies may process hundreds or thousands of short-term workers annually, meaning they continuously pay elevated SUTA percentages on first dollar payroll.

In a high wage base state with a lower SUTA percentage, many low skilled workers still never reach the cap because wages and assignment lengths remain relatively low. But the lower tax rate immediately reduces cost on every payroll dollar processed throughout the year.

For staffing agencies, the SUTA percentage matters more than the wage base because turnover prevents employees from ever reaching the ceiling. The wage base only matters if workers stay employed long enough to hit it, and many do not.

This also hurts the workers who need help the most. Staffing firms are often the first step back into the workforce for people with limited experience, employment gaps, or other barriers to employment. According to the American Staffing Association, 35% of temporary employees are eventually hired full time.

Staffing agencies need to educate lawmakers about this issue. Too many legislators do not understand how unemployment tax structures disproportionately punish staffing firms serving entry level workers. The best way to create change is by joining your State Staffing Association chapter. Individual complaints get ignored. Organized industries get heard.